Commercial Property Deal (Good Deal or Bad Deal)

[Rodney Buford]

BP Colleagues,

I am hoping to get some input on a potential off market deal that I am struggling to pull the trigger on.  I am over analyzing this and is causing me to confuse all of the numbers.  I realize at the end of the day it's a decision I need to make but would love feedback from some experienced colleagues.

Class C property

Property - 8 Unit complex (6 are rentable, 1 totally gutted (~$25,000 rehab), 1 used for laundry and small office)

4 units up / 4 units below

All units 2 bd / 1 ba 

Current rents (6 units) - $425 (Market rent on the low end is $600, average $670)

Current Income/Expense (From 2018 taxes 8825 Income and Expense form)

• 2018 Gross Rents - $30,856
• 2018 Expenses - $25,629 (this is like 80% of rental income going to expenses which concerns me)
  • Tenants pays (Electric, Gas)
  • Landlord pays (Water, Trash, some electric for outside lighting)
    

Original asking price was $198,000 (based on an appraisal they had done this year)

• New Roof this year, Windows 3 years old, Newer hot water tanks, HVAC is older (but the person who owns these is a HVAC technician)

Comparables from appraisal 

• 8 Unit - all 1bd/1ba - Gross Income $38,400 - Sold Aug. 2018 $265,000
• 8 Unit - all 1bd/1ba - Sold July 2018 $270,000

My initial thought would be to BRRRR this but would need to get hard money or get a rennovation loan from a bank to get Unit #7 Rehabbed fully and rented, and as tenants turnover slowly start to update existing units and raise rents. The challenge with the Refinance is it only gives me 6 months (hard money) to improve the complex which I could get unit 7 done and potentially raise a few rents depending on leases but probably not enough to make a big impact on the appraised value. Using the BiggerPockers calculators I don't see the Cashflow immediately but could potentially see this change in Year 2 on.

Sorry for the long message, as you can see I am probably complicating this but fear can cripple a person but trying to push through and grow as a person.

Thank you in advance for any feedback.

[Tim Herman]

@Rodney Buford another thing to check are the leases. I just looked at a 6 plex that had some wacky terms put in by the landlord. He rented one 2 bed unit for $650 for 3 more years when market rents are $800. Another of the units the terms were $650 unless the son moved out and then it dropped to $600. That was for only 2 years. If you do put it under contract get an estoppel letter signed by all tenants telling what the rents are and what the security deposits and any verbal permissions that the landlord has approved.